Energy / Research & Reports

Power plants’ costs and value to the grid are not easily reflected using simple metrics

WASHINGTON, DC — “Cost is one of the key factors influencing the choice of fuels and technologies used to generate electricity. Capital, maintenance, operating, and financing costs often vary significantly across technologies and fuels. In addition, regional differences in construction, fuel, transmission, and resource costs mean that location also matters. While simple metrics are sometimes used for cost comparisons, it is important to understand their limitations.

Levelized cost of energy (LCOE), one common metric for cost comparisons across projects and technologies, considers a plant’s expected lifetime and operation cycle and amortizes those costs over an assumed financial lifetime. Because LCOEs do not include contractual terms on price, duration, or price inflators, they should not be directly compared with other prices such as power purchase agreements. Power purchase agreements may involve project- or corporate-specific finance terms, reflect differing contract terms with the power purchaser, or reflect the value rather than the cost of the energy.

…Different generation technologies also operate in different ways: some are dispatchable, or can be scheduled, while others are dependent on energy sources, such as wind and solar, that are available intermittently. Some plants operate around the clock, while others are likely to operate only during times of high demand. Because electricity prices differ throughout the day, the timing of a plant’s output affects its cost recovery.”

— US Energy Information Administration

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